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Antitrust Policy and Mergers: New Empirical Evidence

Paper Session

Saturday, Jan. 4, 2020 12:30 PM - 2:15 PM (PDT)

Manchester Grand Hyatt, Solana Beach AB
Hosted By: Industrial Organization Society
  • Chair: Nancy L. Rose, Massachusetts Institute of Technology

How to Get Away with Merger: Stealth Consolidation and its Real Effects on US Healthcare

Thomas Wollmann
,
University of Chicago

Abstract

Most US mergers are not reported to the federal government on the basis of their size. This can effectively exempt them from antitrust scrutiny, resulting in mergers to monopoly and duopoly, even in industries where enforcement is otherwise robust. This paper studies the impact of premerger notification exemptions in the context of US dialysis providers. First, I find large effects on enforcement. For instance, many proposed dialysis facility acquisitions that would otherwise be blocked over 95% of the time are blocked less than 5% of the time when exempt from premerger notification requirements. Second, I find equally important effects on market structure. Exempt facility acquisitions account for most of the rise in industry-wide within-market concentration over the last two decades. In fact, applying the enforcement rates faced by reportable mergers to exempt mergers stalls the dramatic consolidation of the dialysis industry. Finally, facility acquisitions associated with exempt mergers compromise the quality of care received by patients.

Oligopolistic Price Leadership and Mergers: The United States Beer Industry

Nathan Miller
,
Georgetown University
Gloria Sheu
,
Federal Reserve Board
Matthew Weinberg
,
Ohio State University

Abstract

We study an infinitely-repeated game of oligopolistic price leadership in which one firm, the leader, proposes a supermarkup over Nash-Bertrand prices to a coalition of rivals. The supermarkup is chosen to maximize the leader’s profit subject to incentive compatibility (IC) constraints and in anticipation of fringe firms’ responses. We provide conditions under which the supermarkup can be recovered from aggregate scanner data. We apply the model to the U.S. beer industry over 2005-2011 and estimate that ABI and MillerCoors implemented supermarkups of $0.60 in the wake of the Miller/Coors merger. Counterfactuals demonstrate that IC binds, as profit is greater with even higher supermarkups. The implied equality constraint jointly identifies a discount factor and an antitrust risk coefficient, the remaining structural parameters. We explore the coordinated effects of ABI/Modelo merger. Without divestitures, the merger would have relaxed IC and resulted in substantially higher prices. Finally, we return to the Miller/Coors merger. For many parameterizations, no supermarkup satisfies IC without the merger. Thus, it may be pivotal in generating price leadership.

Killer Acquisitions

Colleen Cunningham
,
London Business School
Florian Ederer
,
Yale University
Song Ma
,
Yale University

Abstract

This paper argues incumbent firms may acquire innovative targets solely to discontinue the target’s innovation projects and preempt future competition. We call such acquisitions “killer acquisitions.” We develop a parsimonious model illustrating this phenomenon. Using pharmaceutical industry data, we show that acquired drug projects are less likely to be developed when they overlap with the acquirer’s existing product portfolio, especially when the acquirer’s market power is large due to weak competition or distant patent expiration. Conservative estimates indicate about 6% of acquisitions in our sample are killer acquisitions. These acquisitions disproportionately occur just below thresholds for antitrust scrutiny.
Discussant(s)
Judith Chevalier
,
Yale University
Jan De Loecker
,
KU Leuven
Kate Ho
,
Princeton University
JEL Classifications
  • L4 - Antitrust Issues and Policies